A 150-year sentence won’t get $65bn back
1 Jul 09
Bernard Madoff can expect to spend the rest of his life in prison after being sentenced to 150 years
Seen from these shores, sentencing a 71-year old man to 150 years in prison seems like an extravagantly vengeful act on the part of the US legal system. There’s no doubt that “Bernie” Madoff deserved to have the book thrown at him. He swindled thousands of people, companies and charities out of $65bn (around £40bn) over many years, in the biggest ever fraud of its kind.
Madoff was founder and head of Bernard L Madoff Investment Securities, a Wall Street brokerage and one of the New York Stock Exchange’s leading market makers. That aspect of the business appears to have been legitimate.
The broker’s asset management arm, however, was simply a vehicle for the biggest “Ponzi” style fraud ever carried out. Madoff’s investors thought he was using his expertise to outsmart Wall Street consistently with a series of share trades that seemed to produce a steady - and above average – return, year in and year out. In fact, Madoff was simply returning their own money to them and, like any Ponzi scheme, in the end it proved to be unsustainable.
The severity of the sentence not only reflects the scale of the fraud but also the authorities’ frustration that Madoff appears to be protecting those who worked with him on the scam. He has always claimed to be working alone, but now his trial is over, his wife Ruth, sons Andrew and Mark, and a number of former employees all look set to face a grilling by Federal investigators.
“How do you excuse deceiving 200 employees who have spent most of their working life working for me?” Madoff said at sentencing. “How do you excuse lying to your brother and two sons who spent their whole adult life helping to build a successful and respectful business?”
The claim that Madoff worked alone just doesn’t ring true, given the scale of the fraud. Investors were sent regular updates on share trades which, while completely fictional, precisely added up to the returns the firm reported to them. Given that Madoff was frequently away in Florida, the south of France and elsewhere, it’s hard to believe that the scheme simply ran itself in his absence.
But investors’ anger is also being directed at financial regulators for failing to stop Madoff long before the credit crunch exposed his fraud. The supposedly hard-nosed Securities and Exchange Commission apparently looked at Madoff’s business eight times over 16 years, finding nothing wrong, even though the fact that its returns bore no relation to movements in the market should have rung alarm bells.
Madoff was a prominent member of bodies such as the Securities Industry and Financial Markets Association, a former chairman of the alternative stock exchange NASDAQ and a board member for a string of charities. He helped to write many of the rules he broke. Was he just too big a fish to investigate?
The SEC needs to do its own soul-searching now. Simply locking up one crooked financier until 2159 isn’t going to make up the mistakes that allowed Madoff to get away with it for so long.